Visa is Pulling The Dow Higher

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrial Average is down 17 points to 15,867 at 1:30 p.m. EST, with 23 of 30 stocks in the red, as investors await tomorrow's Federal Open Market Committee statement. The Dow would be down far more were it not for its largest component, Visa which is up 2.4%. The S&P 500 was down five points to 1,781.

The Dow is structured as a price-weighted index, so Visa's stock price -- now at $213.52 -- has the largest effect on the average's daily movements. Last week, a federal judge approved a $5.7 billion settlement between Visa, MasterCard , and retailers regarding fee-setting collusion between the two credit card giants. While the settlement is large it removes an area of uncertainty for those considering investing in the two companies. In a sign of confidence for the business, MasterCard recently upped its dividend 83% and authorized a $3.5 billion share buyback.

The economy
There were four U.S. economic releases today.





Consumer Price Index




Core CPI




Current account


-$95 billion

-$97 billion

Home builders index




The one to pay attention is the inflation report. The CPI was unchanged month over month, below analyst expectations of a 0.1% rise, for a 12-month change of 1.2%. Core CPI, or CPI excluding food and energy, was up 0.2% month over month for a 12-month change of 1.7%. The CPI was led up by a 0.3% gain in housing prices, which make up one-third of the measure.

The Fed's favored measure of inflation is the Personal Consumption Expenditures index, as the goods it measures are updated monthly to reflect consumer spending. The CPI is only updated once every two years, providing a more accurate view of the inflation consumers are experiencing.

US PCE Inflation Rate Chart

US PCE Inflation Rate data by YCharts.

PCE inflation has been below CPI inflation the past few years, as housing makes up only 15% of PCE while it represents 30% of CPI.

This is important as the Federal Open Market Committee is meeting today and tomorrow to discuss the Federal Reserve's actions. The Fed is currently pursuing two policies to stimulate the economy and the jobs market. The first is the zero interest rate policy in which the Fed lets banks borrow from it at rates now targeted between 0% and 0.25%. The second policy is quantitative easing through the Fed's monthly $85 billion purchases of long-term assets. The Fed is debating the second program; it has said previously that tapering would begin when unemployment hits 7%, which it has.

Tapering can be seen as a good or a bad thing. Good in that it means the Fed believes the economy is strong enough to improve with just the central bank's zero interest rate policy. Tapering could be bad, though, as it means the market would lose the daily steroids that have been pushing it to new highs this year. I have written multipletimes about why I think the stock market is overvalued, and I'd hesitate to put money to work in the broad market at these levels.

The Motley Fool has always taught that Foolish (capital "F") investors don't invest in the broad market. We invest in great companies at good prices, continue to educate ourselves, and hold on to our great companies over the long term. The market will fluctuate (sometimes massively), but great companies will win out over the long run.

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Dan Dzombakcan be found on Twitter @DanDzombakor on his Facebook page,DanDzombak. Hehas no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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